Shareholders in Montana close corporations have the same inspection rights as those in ordinary Montana corporations. See Mont. Code Ann. § 35-1-1107 (2007). During regular business hours at the corporation’s principal office a shareholder may, upon written demand at least five days in advance, inspect and copy a limited number of documents pertaining to the corporation. § 35-1-1107(1). The items available for inspection and copying under this section are the corporation’s articles of incorporation, bylaws, resolutions of the board creating classes or series of shares, minutes of shareholders’ meetings and records of actions taken without a meeting in the previous three years, certain financial statements, names and business addresses of current officers and directors, and the corporation’s most recent annual report. § 35-1-1106(5). Shareholders who meet additional standing requirements have the right to inspect and copy a wider range of documents than those stated above. § 35-1-1107(2). Shareholders who make a good faith demand for a proper purpose that specifies the records to be inspected and who either have been record shareholders for six months or own five percent of the outstanding shares may inspect the minutes of meetings of the board, committees thereof and shareholders, accounting records of the corporation and the record of shareholders provided those documents are directly related to the stated purpose of the demand. § 35-1-1107(2),(3). The corporation’s articles of incorporation or bylaws may not restrict or eliminate the shareholders’ right of inspection; however, the corporation may charge a reasonable cost to the shareholder for labor and materials used in providing the requested documents. §§ 35-1-1107(4), 35-1-1108(3).
If a corporation refuses to comply with a properly demanded inspection for a reason other than a good faith belief that there is a reasonable basis to doubt the right of the shareholder to conduct the inspection, the court may order the corporation to comply with the demand and may award the shareholder expenses and attorneys’ fees. § 35-1-1109.
Montana law provides for involuntary dissolution of a close corporation by its shareholders if the “directors or those in control of the corporation have acted, are acting, or will act in a manner that is illegal, oppressive, or fraudulent.” § 35-1-938(2)(b); see Skierka v. Skierka Bros., Inc., 629 P.2d 214 (Mont. 1981). Although oppression is not statutorily defined, Montana courts have examined the issue and noted the various ways in which oppression has been analyzed. See Fox v. 7L Bar Ranch Co., 645 P.2d 929, 933 (Mont. 1982) (citing the definitions of oppression that are widely accepted including in terms of fiduciary duty of the majority, reasonable expectations of the minority and harsh or wrongful conduct by the majority). In Fox, the court ultimately analyzed the issue of oppression in terms of the reasonable expectations of the minority shareholder while noting that the majority’s conduct was in violation of the duty of good faith and fair dealing that it owed to the minority. Id. at 934. Examples of conduct by majority shareholders that rose to the level of oppression include exclusion of minority shareholders from management in the business and sharing in profits as well as prohibiting them from participating in the operation of the corporation. Daniels v. Thomas, Dean & Hoskins, Inc., 804 P.2d 359, 368 (Mont. 1990). Additionally, majority shareholders owe the minority fiduciary duties of the “utmost good faith and loyalty.” Whitehorn v. Whitehorn Farms, Inc., 195 P.2d 836, 843 (Mont. 2008). However, the existence of these duties should not allow the minority interest’s complaints to interfere with corporate operations if the majority shareholders can demonstrate a legitimate business justification for their conduct and the minority cannot offer a less injurious alternative. Id.
Shareholders of close corporations may bring derivative suits on behalf of a corporation for wrongs against the corporation. See § 35-1-542. In order to have standing to bring a derivative suit, a plaintiff must adequately and fairly represent the interests of the corporation and have been a shareholder at the time the cause of action arose or received the shares by operation of law from someone who held them at that time. Id. Complaining shareholders need not have the support of the majority shareholders, or even all of the minority interest, provided they fairly and adequately represent the interests of similarly situated shareholders, namely, those that are dissatisfied with the corporation’s failure or inability to pursue the asserted cause of action. S-W Co. v. John Wright, Inc., 587 P.2d 348, 352 (Mont. 1978).
A plaintiff with standing must then make a written demand on the corporation requesting that the corporation act accordingly. § 35-1-543. The shareholder is then prohibited from bringing a derivative action until 90 days have passed after the demand was made unless the shareholder is notified that the demand has been rejected by the corporation or waiting the full 90 day period would cause irreparable injury to the corporation. Id. If the corporation then institutes an investigation into the demand, the court may stay the proceedings pending the outcome of the investigation. § 35-1-544. A derivative suit must be dismissed upon a determination in good faith and after reasonable investigation by a disinterested and independent majority of the board, a committee thereof or other appointed individuals that maintenance of the suit is not in the best interests of the corporation. § 35-1-545. However, court approval is required before a suit may be discontinued or settled and notification of affected shareholders may be required. § 35-1-546. Additionally, reasonable expenses and attorneys’ fees may be awarded to a plaintiff if the suit conferred a substantial benefit on the corporation or to a defendant upon a finding that the suit was brought without reasonable cause or for an improper purpose. § 35-1-547.
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In order to remain on the cutting edge of business owner rights law, Fryar Law Firm keeps abreast of legal developments in all 50 states. This 50-state survey is presented for educational purposes. However, we do not hold ourselves out as experts on the law of any jurisdiction other than Texas, and we may not practice law in any other state, with the following exceptions:
The lawsuit involves a non-Texas company but may be brought in Texas courts--example, if the client is a Texan or the company operates in Texas.
We are part of a legal team that includes local counsel. Out of state legal teams benefit from our experience when we consult. We may also act as lead counsel, if we have local co-counsel and permission of the court.
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This post represents our opinion regarding the relevant shareholder oppression and minority ownership rights law. However, not everyone agrees with us, and the law is changing quickly in this area. This page may not be up to date. Be sure to consult with qualified counsel before relying on any information of this page. See Terms and Conditions.